Review: The Money Trap

I picked up The Money Trap because it offered a distinct and interesting perspective on poor personal finance management. Instead of simply viewing it as a series of simple bad habits or bad moves that can easily be corrected, this book views bad money management as an addiction.

Gallen’s basic premise is that people who tend to always spend what they earn (or, even more dangerously, spend more than they earn) are addicted to spending and materialism, and that this addiction is just as dangerous as an addiction to a narcotic. Thus, Gallen’s approach to solving money problems is much like the ones that would be used to combat any addiction – with a few interesting twists because of the pervasiveness of money in our society.

The Impossible DreamThe Money Trap opens with some interesting discussion about how, as a society, we’ve come to believe too much in the power of money to solve all of our problems. Quite often, we attempt to use money to fix things that money can’t fix, and that is the most futile endeavor of all: “using an external source to fill internal needs.” Gallen really does an excellent job of framing the spending habits of the average American as an addiction (actually, a small handful of different addictions), and his argument is that recovery from this addiction takes on many of the same tenets as recovering from an addiction to a substance.

Money Disorders
Gallen argues here that most money disorders break down into four main categories: overspenders, workaholics, money obsessives, and underearners. He cites overspending as the most obvious and most widespread one – unsurprising, because that’s the one most of us likely thought of when we first heard about this book. I found the other three to be actually more interesting, though, because they take the idea of addiction in less obvious directions – books like The Overspent American deal with overspending very well already. Gallen also offers up a ton of warning signs that you may have some form of money disorder, of which I found “obsessive involvement with investments, savings, and strategies for financial security.” Am I guilty of that one just by having this blog? Are you, dear reader, fueling my addiction? This could be a compelling entry all by itself.

My Story
Gallen gets autobiographical here and the overtones were similar in many ways to my own road to financial armageddon. Both of us dealt with money issues when we were younger, took away from our youth some really poor concepts of money, and both realized eventually that our relationship with money was poisonous and that we needed some major change.

The Overspenders
As I noted above, the addiction to overspending is a disease very well covered in The Overspent American, but Gallen does a strong job here reviewing it, cutting right to the core very quickly. Overspending, in the end, has nothing to do with money – it has to do with feelings. People who feel that the money they earn can’t support them are under constant pressure, and that pressure often exerts itself in a lot of unhealthy ways: panic attacks, stress (and all that comes with it), and inevitably more spending. One common problem: people often spend based on how they think a person with a certain salary should live – unfortunately, often that image is outdated. They spend based on how a person with a certain salary fifteen years ago might have lived, but that’s not the reality today.

Workaholism
Workaholics often bury their actual addiction under a mountain of socially acceptable excuses: ambition, competition, a strong work ethic, family responsibility, desire for promotion, and so on. The truth, though, is that people who are constantly chasing such things are often actually addicted to their job – they can’t get enough. I have a friend who is like this – he is constantly obsessing over his job for various “reasons” that seem to change all of the time, but he seems to rarely have appropriate time for his family – not even taking a full week off for the recent birth of his child, for example.

Money Obsession
One might argue that this is the disorder that many personal finance bloggers have, as it would be easy to see a money obsession in the words that many bloggers write. The truth is that this is a subtle problem, but a lot of people have it. They daydream about the big payday and they spend a lot of time micromanaging their money to squeeze out a few nickels. I often think of people who practice credit card arbitrage in this category – they play a very obsessive game to earn $50 from shifting around credit card balances. Am I a money obsessive? I don’t think so – most of my personal finance thinking is expressed in this blog in some form or another and I likely wouldn’t think about it nearly as much without The Simple Dollar around to encourage it. That doesn’t mean it’s not a real problem for some.

The Underearners
This is the disorder in the book that’s most likely to make people angry. I think, in this chapter, Gallen is actually speaking directly to one of my commenters, Minimum Wage. Gallen argues that people who don’t earn much money are often subject to a disorder in their self esteem, where all they see are the flaws in themselves and thus don’t believe they can earn more – or even deserve to earn more. Some people convince themselves that this is acceptable because they’re not “selling out;” this is often coupled for a general disdain for earning money and capitalism. This is a really interesting and controversial take, one that is likely to deeply incense a lot of potential readers – and one worth discussing in great detail.

Money and Couples
What if one person in a couple expresses one of these disorders? Or, even worse, both members express a money disorder? Gallen argues here that the real key to dealing with the obvious chafing that occurs when one person in a partnership exhibits an addictive behavior is communication, and lots of it. If you think your partner has one of these disorders, talk about it. Seek out the root causes. I found It Pays to Talk to be a brilliant book for opening the door to difficult financial conversations such as these.

Money, Therapy, and Depression
Many people turn to therapy to help solve problems like these, and quite often this therapy ends in frustration. People often hope for a quick fix to their problems, and that’s not what therapy provides, especially with money-related disorders that are often buried under mountains of excuses and reasoning that you’ve made with yourself. Digging through all of that is not immediate, so if you need a quick fix, a therapist likely won’t be able to help. However, therapy can help over the long haul, if you give it time.

Money and the Recovering Addict
Here, Gallen makes the great point that people who are recovering from other addictions (like substance addictions) will often fall into a money addiction, and that a recovering addict should be very careful to avoid this. People often find themselves with a “hole” inside in some way when recovering, and they try to find something “healthy” to fill that hole. Given the consumerist nature of modern society, quite often money addictions end up filling that hole – they become obsessed with counting their money, with their job, or with their inadequacies at being a strong earner. Thankfully, addiction recovery counselors are beginning to recognize this problem and have some techniques for addressing it.

Clarity
This is really the central chapter of the entire book, as it spells out the key to recovery from any sort of money disorder: clarity. Spelling out exactly where you are financially and defining a very clear and discrete spending plan is often the key to solving many money disorders, particularly those dealing with overspending. He also offers strong encouragement for people dealing with a money disorder to move exclusively to cash and off of plastic, at least for a while, because plastic offers a level of distortion that is in complete opposition to clarity.

The Spending Plan
Gallen outlines the basics of a spending plan in this chapter – very basic personal finance stuff. While I do agree with Gallen that a spending plan can be really useful for getting someone on the right financial path and causing them to really see where their money is going, I view them much like training wheels on the bicycle of personal finance. The real purpose of a spending plan, in my view, is to train you to deeply understand how your spending affects your overall financial picture – once you really understand it, it becomes much less important. A spending plan can be a powerful thing to set up and follow for a few months, just to see how your money is really flowing and how you can change that flow, but once you’ve really got a grip on it, it becomes almost automatic.

Dealing with CreditorsThe Money Trap suggests that the best way to deal with creditors is with candor. Tell them flat-out that you’re trying to get your financial house in order, tell them that you’ve chopped up your credit cards, and tell them point-blank what you can afford to pay each month. Tell them this in writing, along with the first payment. Then, don’t give in to the various emotional and psychological appeals that creditors may use on you – just ignore them, for the most part. If you are in deeply desperate straits, ask for a ninety day moratorium in writing from some of the creditors. Also, don’t worry about your credit report too much for now – if you have creditors calling you, it’s likely already in trouble.

Working with the Spending Plan
Here, the book discusses keeping track of what you actually spend and using that to evolve your spending plan and also to see where the spending holes are so that you can work on them. Gallen encourages people to use a notebook to record all of their spending, then using that to make sure that you’re sticking to the spending plan. This is really a good idea if you’re trying to figure out where all of the money goes, but you have to be vigilant with it – write down everything. If you’ve never done this before, you’ll probably be shocked at how much of your money floats away on simple, little things.

The Time Plan
Gallen argues that most people with money troubles also have time troubles, especially workaholics, and he argues on behalf of a time plan. The plan he offers here is basic time management stuff. I’ve found, though, that if you’re having trouble with being a workaholic, a great book to read is Covey’s First Things First, as it does a great job of helping you define what’s really important and how you can allocate appropriate time to it, which is really what Gallen is shooting for here.

Wholeness and Continuity
This chapter takes on the “where do we go from here?” question. Where does a person with a money disorder go once the initial crisis has passed? There is some danger of relapsing, so the real challenge is to set goals that can keep the motivation going and continue to break down that false relationship with money. Much of the talk here sounds a lot like the talk in Your Money or Your Life, which is a good thing, in my opinion. A normal, healthy relationship with money comes down to setting goals and working to achieve them.

Savings, Retirement, and Well-Being
Here, Gallen offers up a final few nuggets of direct financial advice: start an emergency fund and do some automatic investment for retirement, but don’t overdo it. The key is to live life to the fullest, not to move down a different road of money obsession. Just save enough to keep yourself safe, and you’ll be fine.

Buy or Don’t Buy?

Having read a small mountain of personal finance books in the last two years, I tend to be most interested now in the ones that offer some sort of unique perspective. There are a lot of personal finance books out there that just repeat the same old material – and, frankly, those books bore me to death.

I think that’s a big part of why I liked this book. While there were pieces that seemed directly related to other personal finance books, Gallen regularly offered some interesting insights and perspectives. Even though he was often looking at issues that seem pretty mundane, the perspective of treating money problems solely as an addiction or a disorder enabled some fresh looks at the problems – and plenty of food for thought for me for a while. In fact, if you judge a book by how many notes it convinced me to write down, The Money Trap was an unquestioned success.

Is it the “ultimate” personal finance book? No. Is it a very good book, particularly if you’re getting a sense that there’s something deeply wrong with your money and/or your work? Yes, it is. Pick this one up if any of the problems mentioned in the review really resonate with you. If not, you’ll probably learn more from another personal finance book.

This books sounds quite interesting. Trent, I don’t think you’re obsessed, at least based on what you post, but possibly you’re enjoying using your gifts to educate others and share info. And by doing so, we (your readers) are able to help you stay on your financial “toes”.

Recently, I’ve been trying to really have meaning conversation with my family about things that are important. This Thanksgiving it was money. I was delighted to share about what I’d been learning, including reading your blog. Too often we’re around people we love and don’t share the “wealth”.

This books sounds quite interesting. Trent, I don’t think you’re obsessed, at least based on what you post, but possibly you’re enjoying using your gifts to educate others and share info. And by doing so, we (your readers) are able to help you stay on your financial “toes”.

Recently, I’ve been trying to really have meaningful conversation with my family about things that are important. This Thanksgiving it was money. I was delighted to share about what I’d been learning, including reading your blog. Too often we’re around people we love and don’t share the “wealth”.

I’ll go on the record as an obsessor. That being the case, you surely can’t expect me to keep this short (the last couple paragraphs will be the meat as it relates to this post). =) I originally posted this on another forum regarding “who’s good at saving money?” I don’t object to any amateur (or pro) psychoanalysis.

In general, I am not a stand-out guy. I have no strong discernable talent, but rather have some surface-scratching knowledge about many things. My having a decent job is by pure luck and has little to do with any abilities. I can’t hold a detailed, technical conversation about much with anyone. But…. I absolutely own at saving money. My income is NOT stellar (100k household this year, and a couple years ago nowhere near that). I have just observed that I naturally and happily get by with less expenditures than (most of) my 300 million counterparts in this country.

I own a moderately priced home that meets our needs (1200ish sq ft, 3 br 2 ba), paid 20% down out of college and am dreaming of having it paid off in the next couple of years if all goes well.
I own a 2000 Ranger with no desire to drop $30k+ on a new car. The wife had a 2000 Elantra we were going to keep another 10 years until some jackhole totalled it this past winter. Bought an ’06 Tucson in cash. If it’s not around for at least a decade I’ll beat whoever’s responsible. We live about 6 miles from our work and 1 mile from the gym. We drive about 5k miles a year each max, helping not only fuel costs, but fighting the urge to buy a new vehicle (consider the “price per mile” of a new car).
I like home theater and video games, but not much else, ie I don’t buy furniture, clothes, gadgets (other than iPod) to keep up with the Joneses or any ideal.
I eat out an average of 1x a week max, sometimes a couple months will go by before I do. I buy groceries and make use of coupons and sales. I’m blessed with the ability to eat the same thing for meals every day without minding (oatmeal, chicken breast, vegetables, tuna, milk…. it doesn’t even really matter, most anything will be cheaper than going out all the time).
If I drink, I almost always do it at home where it’s much cheaper, better, and less annoying than bars. I go out once a week with friends, but they accept how I am and am happy to have me buy one pitcher every couple of weeks vs. sitting there not drinking anything (which is exactly what I’d do before coughing up my “fair share”).
For anything else (ie home theater and video games stuff) I find ways to buy inexpensively (I’m on my second HDTV, both purchased at bargains, and I don’t buy my Wii games). Never will you see me buy something over $10 spontaneously, I will always do some kind of research first.
I found the cheapest home and auto insurance. I keep myself in good health and use the high-deductible insurance plan at work ($6 a paycheck), to counterbalance the wife, who’s a pharmaceutical companies’ dream due to RA, asthma, and allergies.

An important note here is that not once have I ever felt “deprived”, but rather I’d feel much more deprived working for someone else (which is what debt does) more than I already am. When I break down the true life energy cost (“how much would I need to work to buy this”) on stuff most people buy without thinking I’m like “hell no, not worth it”.

I funnel savings into Emigrant/Countrywide accounts (if you have over $10k I highly recommend CW, 5.3% still). Starting last year the wife and I plan to max out Roth contributions each year. She does 5% into a 403b, I do 6% (to get the full company match) into a 401k. Anything extra is going into our balloon mortgage up in Fall ’09, I’d prefer to have that off the books vs. paying to refinance at a higher rate. It was 80k in ’02. Wife has 50k in student loans at 2.6% or so, it was $65k but I paid all the 8-9% stuff down a few years ago.

I put every damn thing I buy on a credit card. I get 1.4% or 5-6% back, and get interest on the float. And actually, I’ve recently schemed to get an ungodly amount of the CC companies’ money at 0%, and put that in my savings account for a yearish. The only interest I ever paid (other than mortgage) was on my first 3 car loans as a kid, and I plan to never pay it again. Instead, I have interest work for me. On top of the savings accounts, I’m able to loan $ out to a friend who is “bizarro Madd Hatter” (now HIS would be a long story) at 10% tax-free (and yes, I’m doing him a favor).

My money psychology allows all this, but has a downside. I can NOT stop thinking/worrying about finances and the future. I’m constantly running numbers and scenarios in my head. I remain convinced, even after 2 years, that I will lose my business analyst job. We’re in a position now where we could survive on the wife’s salary, though I’m guessing she wouldn’t let that fly for long, and I have no idea what else I could go find (back to first paragraph). I really don’t have much in the way of ambitions/dreams other than the vague “dependent on nobody, doing whatever I feel like day to day”.

I don’t think of myself as a “hoarder”, and I have no desire to die with a million or two in the bank. I do see money as a tool and not an end. But the line blurs considering my ultimate goal is financial independence. The idea that I’m dependent on my job to live sucks. Obviously, if I was living paycheck to paycheck I may have put a bullet in my head by now, I don’t know how all these people do it.

J.D. wrote a post not too long ago about shop-aholics and I never would have dreamed that would be me- until I read his post. It sounds like the topics in this book are closely related and I wonder if I have shifted my obsession with buying stuff to an obsession with managing my money. Could be why I like a really detailed budget. Maybe I’m devoting too much time to my money now. I’m not sure yet, but it’s an interesting idea to ponder.

After reading this review I would say I am a habitual underearner although I had never actually thought about it that way. Until my most recent job I did not earn an income over $25,000. I have a college degree and have been working for almost 10 years now and consistently found jobs that did not require a college degree and therefore paid much less than I deserved. These were jobs that did not require much from me, often were incredibly boring and had no future.

My current job as a paralegal is actually not that much better since my salary is considerably lower than what other paralegals at my level earn in my area (NYC).

Until recently I barely paid attention to my financial situation and tried to hide from the worry and fear relating to money that inevitably ran my life. I have finally realized that this was a problem and am now developing a financial plan for my future. Although I still have a ways to go I ultimately feel much more secure and happier knowing that I am facing my situation head on.

Excellent review, Trent! I think I’m going to go get this book (from the library, of course) and read it. If anything I think I’m a cross between a workaholic and an overspender. I’m the only person I know who actually enjoys going to work on weekends when no one else is in the office and banging out a report. Freakish, actually.

The Underearners section and whole financial self-esteem issue sounds especially intriguing. I think everyone has a little bit of this inside of them, don’t you think? This idea that “No way I’ll ever make that.”

I wonder how many people with money addictions also have problems with their weight. Since it’s impossible to give up eating or spending money entirely, we have to be exposed to temptation constantly. It’s a real challenge. I find it easier to give up an addiction to something I can quit entirely, like drinking or smoking, than to something I have to learn to use sensibly and in moderation.

I might have to check out this book. I would like to hear more about the underearner. If you tried to get a good job but could onlt find a low-paying one, does that make you an underearner? Or is it just those who aren’t trying.

In my early 20s, just out of college, I was making much less money than my friends from high school, who were computer programmers during the tech boom. It really did affect my self esteem, I felt like such a loser (even though my friends are all really nice and nobody looked down on me). It took me a solid year to find a better job, and that made me feel even worse. Ironically I found that dream job just as the tech bubble burst so while everyone else was doing poorly I was doing well.

Now I’m probably a little money obsessed. I think about it a LOT – I don’t ever want to get back to the days of being in debt.

Just want to point out that the last few comments I have read from Minimum Wage (I don’t read comments after all the posts) have been thoughtful and to the point. Good for you, MW. Hope things are looking up.

Wow! This was a good one. I think I’m an addict but I’m addicted to finding the best deal. That in itself can cost. But I personally find amazing things if I wait. I usually buy 2nd hand and I rarely pay full price. I do all the right things with credit cards except when we bought this house and my one card jumped up to $16K. I personally don’t believe therapy works on people when little money because they are always worried about how they are going to pay the therapist. I would be upset if I had to pay for this when a good friend that has half a brain could help you work it out. Like Trent’s blog here. He is straight to the point. I like that in a person. I am still trying to find the Washing soda to make detergent in my area. But the hunt is part of the fun I guess. I stopped going to stores because I end up spending. Have a great Christmas everyone! Penny

Gallen’s basic premise is that people who tend to always spend what they earn (or, even more dangerously, spend more than they earn) are addicted to spending and materialism, and that this addiction is just as dangerous as an addiction to a narcotic.

I usually spend what I earn, but I’m living on $1,000 or less per month and I’m paying for student loan debt, health insurance, and prescriptions. I would be wrong, but I don’t think I’m overspending.

I haven’t seen this addressed, but I suspect that at some point, time gets in the way of optimal earning.

Even if I were to unload all the psychological baggage of underearning, the chronological reality is that I have reached an age where applicants generally find it hard to get a job. Combined with my complete lack of anything resembling “career-related” experience, I don’t think I have a chance of getting a better job.

I should pick up this book too. I’m trying to claw my way out of the Under-earner category, I think. I took my job several years ago “just to get through college” and made a bunch of mistakes of the credit-grows-on-trees variety. Now I’m trying to get unstuck from the job, deal with the bills and student loans, and find a job that really makes me happy.

I must say I was confused by this article because I don’t know “Minimum Wage” yet.

I can apply all I want but without marketable skills or a decent resume I’m not going to get hired. I used to live in another state where they had a “college graduate” applicant exam and pool. (All you needed to get into the pool was a degree and a decent score on the exam.) I had an excellent test score, and then job openings are offered to small groups in the pool. I applied but with my worthless resume I never even got an interview for a state job.

Minimum Wage, let’s talk, I would be glad to look over your resume and help you edit it into something better, FREE I am not selling a service here! You see, in many instances the difference between a good resume and a poor one is just how you word things… Also, you have to win in the interview… Have you practiced interviewing? Many universities have a service where they actually bring in outside people to help you practice interviews, they then give you a score on how you did (dressing, eye contact, all that stuff)… You seem very down on yourself and that would make you interview less well… Anyway, I always get the job if I want it and feel that I am a pretty good ‘interviewee’ therefore.

So, want help? (oh, I graduated at 40, in Physics, with nothing but a BS, and am have, without a PhD in this field, worked at some very prestigious places, MIT’s Lincoln Labs for example, and now am a Physicist working for the government)

My Bro in law was a serious underearner he had a very profitable painting business. It wasn’t unusual for him to get longer term jobs that would net large profits, which he then would turn around and lose just as much or more on the next job. He said he could’t deal with having more than a bit of money in the bank. So the easiest way to deal with that was to ensure he took a money losing job after a particulary profitable one. Even today they have problems with owning nice things. Although he’s gotten better at having money in the bank.

I personnaly read the money trap lately and really enjoyed doing it! A lot of it’s content confirmed my believes. Just before I started reading it, I had manage a logical way of doing a budget, a spending plan as he calls it, and it pretty much looks like his! It definately confirmed my way of doing it, except I would’nt put the creditors at the botton of the list since I believe we are entirely responsible for it and we should assume it! I shave it up for the top, not the left overs.

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